Even though their ecosystems play a crucial role in global climate mitigation and adaptation, small island developing states face negative feedback loops from a host of interconnected economic and environmental challenges. Innovative financial solutions such as green and blue bonds hold the key to these countries’ resilience.
NASSAU/MALÉ – Small island developing states (SIDS) are on the front lines of climate change, threatened by rising sea levels, extreme weather events, and ocean warming and acidification, despite contributing the least to global greenhouse-gas emissions. This now poses an existential risk to our ways of life, our livelihoods, and the very ground beneath our feet.
Given our disproportionate reliance on the ocean, SIDS are uniquely positioned to preserve this fragile but essential resource. These countries are home to 40% of the world’s coral reefs, which shelter one-quarter of all marine life and directly support the livelihoods of 500 million people. But even though our ecosystems play a crucial role in global climate mitigation and adaptation, SIDS face negative feedback loops from a host of interconnected economic and environmental challenges.
In the Maldives, which comprises nearly 1,200 islands and contains 3% of the planet’s coral reefs, fishing and tourism account for up to 36% of GDP, while around 98% of exports are derived from the ocean. Because the economy depends on healthy coral reefs and marine life, increased coral bleaching and declining fish stocks spell economic trouble. Moreover, climate change has led to freshwater scarcity, forcing the Maldives to rely on bottled water and thus increasing the flow of plastic waste into the ocean.
It is a similar story in the Bahamas, which consists of 700 islands and boasts the world’s third-largest barrier reef. Tourism is even more central to the Bahamian economy, accounting for around 50% of GDP and employing nearly 70% of the work force. But despite tourism’s essential economic role, it has its own challenges, for example cruise ships dump plastics, fuel, and other waste into the ocean, degrading the very assets that attract visitors.
In many SIDS, the ocean also serves as an important thoroughfare. For a population spread out over atolls or an archipelago, the movement of people and essential goods – including food, medical supplies, potable water, and fuel – depends on inter-island mailboats and barges, which are particularly vulnerable to adverse weather. Increasingly frequent and severe weather events – a consequence of climate change – could thus leave communities with insufficient supplies and uncertain about when the next shipment will arrive.
In addition to disrupting supply chains, climate disasters can destroy infrastructure. Last year, St. Vincent and the Grenadines suffered economic damage estimated at $230 million, equivalent to 22% of its GDP, from Hurricane Beryl, while Hurricane Dorian wiped out over 25% of Bahamian GDP in 2019. Dominica suffered an even worse fate in 2017, when Hurricane Maria damaged or destroyed 95% of its housing stock and caused economic losses amounting to 226% of its GDP. These catastrophic events disrupt every aspect of life on our islands, and the high costs of rebuilding result in another negative feedback loop: greater economic losses from vulnerable infrastructure reduces our capacity to invest in resilience.
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In the Maldives, 35% of financing for climate adaptation is provided by the domestic budget, while 34% comes from loans that will eventually need to be paid back. These outlays divert resources from other pressing needs, such as improving education and health-care services and strengthening democratic governance. Moreover, the financial pressure from climate shocks makes exploratory deep-sea mining and other risky ventures more tempting as a short-term fix to increase revenue, despite long-term damage to the marine environment.
The key to breaking these feedback loops is more financing. The problem is that many SIDS are in or at risk of debt distress, making new borrowing prohibitively expensive. Countries that have graduated from “least developed country” status also struggle to secure enough investment, since they can no longer access various grant facilities and concessional finance. SIDS are thus at risk of entering a debt spiral.
One promising solution is to increase the use of green and blue bonds, which provide more affordable financing for climate adaptation and biodiversity conservation, enabling SIDS to protect critical ecosystems and build economic resilience. In the Bahamas, for example, the recently announced Nature Bonds project, a cross-sector collaboration between banks, NGOs, and the Bahamian government, is expected to generate an estimated $124 million for marine conservation over the next 15 years, without adding to the country’s debt burden. Programs such as the Ocean Risk and Resilience Action Alliance’s Blue Bond Accelerator, a new non-profit entity supporting governments, private issuers, and investors in structuring these instruments, will also help unlock long-term capital for SIDS.
Equally compelling are biodiversity and carbon credits, which recognize the essential role that SIDS play in mitigating climate change. These islands’ coral reefs, mangroves, and seagrasses are important stores of biodiversity and carbon, absorbing vast amounts of CO2 and providing valuable economic benefits. Incorporating these contributions into compliance and voluntary credit markets would develop new funding streams for SIDS, ensuring that they are financially rewarded for their conservation efforts.
With these tools, SIDS can harness our unique ecosystems and natural resources to achieve a more resilient and sustainable future. Yes, these countries are on the front lines in the fight against climate change. But SIDS are also home to some of the world’s most valuable natural assets. Preserving these precious resources requires sustainable economic strategies, innovative financial solutions, and, perhaps most importantly, coordinated international support.
This commentary is part of The Ocean Imperative debate, brought to you in part by The Ocean Risk and Resilience Action Alliance and AXA.
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NASSAU/MALÉ – Small island developing states (SIDS) are on the front lines of climate change, threatened by rising sea levels, extreme weather events, and ocean warming and acidification, despite contributing the least to global greenhouse-gas emissions. This now poses an existential risk to our ways of life, our livelihoods, and the very ground beneath our feet.
Given our disproportionate reliance on the ocean, SIDS are uniquely positioned to preserve this fragile but essential resource. These countries are home to 40% of the world’s coral reefs, which shelter one-quarter of all marine life and directly support the livelihoods of 500 million people. But even though our ecosystems play a crucial role in global climate mitigation and adaptation, SIDS face negative feedback loops from a host of interconnected economic and environmental challenges.
In the Maldives, which comprises nearly 1,200 islands and contains 3% of the planet’s coral reefs, fishing and tourism account for up to 36% of GDP, while around 98% of exports are derived from the ocean. Because the economy depends on healthy coral reefs and marine life, increased coral bleaching and declining fish stocks spell economic trouble. Moreover, climate change has led to freshwater scarcity, forcing the Maldives to rely on bottled water and thus increasing the flow of plastic waste into the ocean.
It is a similar story in the Bahamas, which consists of 700 islands and boasts the world’s third-largest barrier reef. Tourism is even more central to the Bahamian economy, accounting for around 50% of GDP and employing nearly 70% of the work force. But despite tourism’s essential economic role, it has its own challenges, for example cruise ships dump plastics, fuel, and other waste into the ocean, degrading the very assets that attract visitors.
In many SIDS, the ocean also serves as an important thoroughfare. For a population spread out over atolls or an archipelago, the movement of people and essential goods – including food, medical supplies, potable water, and fuel – depends on inter-island mailboats and barges, which are particularly vulnerable to adverse weather. Increasingly frequent and severe weather events – a consequence of climate change – could thus leave communities with insufficient supplies and uncertain about when the next shipment will arrive.
In addition to disrupting supply chains, climate disasters can destroy infrastructure. Last year, St. Vincent and the Grenadines suffered economic damage estimated at $230 million, equivalent to 22% of its GDP, from Hurricane Beryl, while Hurricane Dorian wiped out over 25% of Bahamian GDP in 2019. Dominica suffered an even worse fate in 2017, when Hurricane Maria damaged or destroyed 95% of its housing stock and caused economic losses amounting to 226% of its GDP. These catastrophic events disrupt every aspect of life on our islands, and the high costs of rebuilding result in another negative feedback loop: greater economic losses from vulnerable infrastructure reduces our capacity to invest in resilience.
Secure your copy of PS Quarterly: The Year Ahead 2025
Our annual flagship magazine, PS Quarterly: The Year Ahead 2025, has arrived. To gain digital access to all of the magazine’s content, and receive your print copy, subscribe to PS Digital Plus now.
Subscribe Now
In the Maldives, 35% of financing for climate adaptation is provided by the domestic budget, while 34% comes from loans that will eventually need to be paid back. These outlays divert resources from other pressing needs, such as improving education and health-care services and strengthening democratic governance. Moreover, the financial pressure from climate shocks makes exploratory deep-sea mining and other risky ventures more tempting as a short-term fix to increase revenue, despite long-term damage to the marine environment.
The key to breaking these feedback loops is more financing. The problem is that many SIDS are in or at risk of debt distress, making new borrowing prohibitively expensive. Countries that have graduated from “least developed country” status also struggle to secure enough investment, since they can no longer access various grant facilities and concessional finance. SIDS are thus at risk of entering a debt spiral.
One promising solution is to increase the use of green and blue bonds, which provide more affordable financing for climate adaptation and biodiversity conservation, enabling SIDS to protect critical ecosystems and build economic resilience. In the Bahamas, for example, the recently announced Nature Bonds project, a cross-sector collaboration between banks, NGOs, and the Bahamian government, is expected to generate an estimated $124 million for marine conservation over the next 15 years, without adding to the country’s debt burden. Programs such as the Ocean Risk and Resilience Action Alliance’s Blue Bond Accelerator, a new non-profit entity supporting governments, private issuers, and investors in structuring these instruments, will also help unlock long-term capital for SIDS.
Equally compelling are biodiversity and carbon credits, which recognize the essential role that SIDS play in mitigating climate change. These islands’ coral reefs, mangroves, and seagrasses are important stores of biodiversity and carbon, absorbing vast amounts of CO2 and providing valuable economic benefits. Incorporating these contributions into compliance and voluntary credit markets would develop new funding streams for SIDS, ensuring that they are financially rewarded for their conservation efforts.
With these tools, SIDS can harness our unique ecosystems and natural resources to achieve a more resilient and sustainable future. Yes, these countries are on the front lines in the fight against climate change. But SIDS are also home to some of the world’s most valuable natural assets. Preserving these precious resources requires sustainable economic strategies, innovative financial solutions, and, perhaps most importantly, coordinated international support.
This commentary is part of The Ocean Imperative debate, brought to you in part by The Ocean Risk and Resilience Action Alliance and AXA.